- Written by Erin Delmore
- New York economics correspondent
As countries around the world struggle to recover from the economic setbacks caused by the pandemic, one country in particular has emerged stronger.
With a fast-growing economy, strong labor market, and falling inflation, the United States has outperformed Europe and other countries.
In terms of GDP, it recorded an increase of 3.3% in the fourth quarter of 2023, well above the 2% expected by economists.
This puts the US at 2.5% for the year, outpacing all other developed countries and expected to reach that level again in 2024.
“The U.S. is holding up much better than other countries,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “The U.S. economic engine appears to be running the same way other countries are losing momentum.”
Experts say there are several reasons why the United States is outperforming other countries.
1. Inject trillions of dollars into the economy
When the COVID-19 pandemic halts in-person work and social life, countries are wondering how to support their homebound populations, including many who have lost their jobs or are unable to work. I was forced to work on it.
In March 2020, Congress rushed to pass a $2.2 trillion stimulus bill that would pump cash into the pockets of American workers, families, and businesses. In order to keep small businesses afloat and the workforce employed, he enacted two additional laws.
This was the largest influx of federal funds into the U.S. economy in history. Roughly $5 trillion flowed to everyone, from individuals earning an extra $600 in weekly unemployment benefits to state and local transit agencies strapped for cash without commuters.
“I think there was a whole generation of policymakers in 2008 and 2009 who learned the lesson that if you don't act big and bold, problems will persist,” said Aaron Terrazas, chief economist at Glassdoor. .
“If you're interim, you're prolonging the pain. So I think that's one of the reasons why this fiscal response was stronger this time.”
The stimulus package is still credited with supporting consumer spending, which accounts for 70% of economic activity. This is supported by the ability to consume despite high inflation rates.
Ryan Sweet said some of the money that went into households' pockets ended up in excess savings and into a war chest that Americans could tap into when they needed it.
Some countries, such as Japan, Germany, and Canada, also signed large bailout deals, but the size of the US bailout deals seemed small compared to the size of other countries.
European countries have stronger social safety nets than the United States and have been able to adapt existing programs without increasing spending. However, this short-term advantage could not compensate for the large gap in stimulus magnitude.
2. Flexible job market
High inflation has been a painful experience for many Americans and has shaped their view of the state of the economy. However, a strong job market supports disposable income, which is the driving force behind consumer spending.
The U.S. unemployment rate has been below 4% since February 2022, which is on par with historic lows. And while prices skyrocketed, real wages also rose. Low-income households have seen the most pronounced real wage growth.
The United States also experienced a sharp rise in productivity in 2023, growing at the fastest pace in years.
Julia Pollack, chief economist at ZipRecruiter, points to flexible labor laws that allowed companies to cut jobs early in the pandemic. While this caused short-term pain for workers, it allowed businesses to adapt to the moment and invest in new technology.
She cited the example of a hotel that laid off employees and did not return employment to pre-pandemic levels.
“They've simply changed a lot. Self-checkout and mobile check-in technology has been introduced. Rooms are cleaned less frequently and room service has been eliminated. Because now customers use Uber Eats. Because I tend to like it.'' I'll take the order and the delivery anyway. ”
She said hotels are lighter, leaner and less staff-intensive, changes that mean workers will survive and benefit in the long run.
The United States enjoys another advantage. It is the ability to resupply the labor market through immigration, especially at a time when population growth is slowing as baby boomers retire.
Europe's approach favored companies paying money to keep employees on payroll if lockdowns crippled business. The UK's furlough scheme paid employees 80% of their wages and lasted more than 18 months.
As a result, U.S. unemployment has become even more dire, but laid-off American workers now qualify for newly expanded unemployment benefits that put cash straight into their pockets.
3. Energy (in)dependence
The United States is a net exporter of energy, which experts say contributes to the strength of the American economy.
When Russia invaded Ukraine in February 2022 and energy prices soared, Europe absorbed much more of the impact than the United States. Germany, Europe's main manufacturing hub, was dependent on Russian natural gas through the Nord Stream 2 pipeline. Its productivity took a hit.
In what experts called a “double shock” for the pandemic and subsequent Ukraine, soaring energy prices have pushed up inflation in Europe.
Ben Westmore, who oversees monitoring of the US economy at the OECD, said the impact of the Ukraine war on energy prices was much worse in Europe than in the US.
Gasoline prices jumped nearly 20% in Europe from the beginning of 2021 to 2022, he said, but in the U.S. it rose only 3% to 4%.
He pointed out that not only are prices rising significantly in European countries, but there is also an increasing tendency for companies to pass on prices to consumers.
“Both of these factors are helping to ease inflation in the United States at a faster pace than in many countries, especially Europe,” he said.